Allowing State HFAs to Help Refinance Borrowers in Trouble


MBA supports allowing state housing finance agencies (HFAs) to use funding received through the issuance of tax-exempt mortgage revenue bonds to include refinancing of certain loans.

If enacted quickly, this change in federal tax law would enable states to help borrowers with limited current options refinance into an affordable loan prior to or immediately following an unaffordable increase in their adjustable interest rate. The majority of these potentially troublesome rate resets are anticipated in 2008, so legislation must be passed now in order to be effective in stemming delinquencies and foreclosures.

With this added authority enacted by the end of the year and a temporary increase in the aggregate cap on state issuance of tax-free mortgage revenue bonds of at least $20 billion, at least 170,000 borrowers could be helped over the next three years.
MBA supports a program that would:

  • Allow HFAs to determine specific eligibility based on local conditions, but mortgages generally would be for borrowers who are facing imminent default, or are in default, as a result of an unaffordable interest rate increase, or borrowers referred by a HUD-approved counseling agency.
  • Allow each HFA to decide whether to participate in and the amount of funding (up to its state cap) allocated to the program.
  • Allow participating HFAs to determine the loan programs and underwriting criteria for the refinanced loans.
  • Sunset by 2011.